Ghana's Growing Debt and Its Implications for the Economy

Abstract

Management of public debt remains a major economic challenge to governments across the globe. Public debt management is more challenging to countries classified as least developed, less developed, and developing than those termed as developed or advanced economies. Challenges to economic management in some countries led to their description as highly indebted poor countries (HIPC) and low-income countries (LICS). In spite of high interest charges, most governments of developing economies borrow from international financial institutions to support their annual budgets; and to embark on social and institutional infrastructural developments in their respective economies. However, many economic experts and citizens in most of these developing economies have raised concerns about whether or not their governments use the contracted loans for the purposes intended. The purpose of this research was to assess trends in Ghana's debt, and the relative effect of debt on the economy. The present study relied on the quantitative approach to scientific inquiry. Specifically, a cross-sectional design, an example of survey design, was adapted and used in the research. This allowed the researcher to gather relevant research data over a specific period of time. Data required for the research were obtained from secondary sources including text books, journals, research papers, newspaper publications; Google search engine, index mundi, and electronic databases of the bank of Ghana and international bodies such as the international monetary fund, and world economic outlook, among others. Descriptive statistics and regression models were used to describe the research variables; and to evaluate their behavior over the stated time frame in the Ghanaian and other economies. Findings from the research revealed a positive relationship between debt and the economy; the findings revealed debt accounts for about 98% of the variation in GDP. The study recommended the need for redefinition of debt sustainability and effective implementation of the succession plan principle. Government must ensure relative stability of the cedi against the major foreign currencies to avert the possibility of issuing more notes to settle the same outstanding debts at maturity dates. Intensification of the industrialization campaign is necessary to reduce unemployment rate; and minimize the need for regular borrowing to balance government's annual economic budget.